Allocating Demand to Minimize Production-Related Costs

摘要

Trade promotions are incentive programs offered by manufacturers to downstream stages of the supply chain with the objective of increasing sales or market share. Several researchers in marketing (e.g. Chevalier and Curhan 1976) have suggested that trade promotions may not offer significant marketing benefits. It is evident that, in the absence of significant marketing benefits, the overall impact of a trade promotion would be determined largely by its impact on production costs. Operations management researchers (e.g. Fisher 1990) have often assumed that the demand fluctuations resulting from trade promotions invariably increase production costs relative to a constant demand pattern. Previous research (Ravi 2005) showed that this assumption is valid for a two-product system. This paper examines the validity of this assumption for a system with more than two products. It is shown that, for such systems, demand fluctuations are not guaranteed to result in higher costs than a constant demand pattern.